Burberry Group Plc · LSE:BRBY
Burberry — H1 2009/10 Earnings Presentation
60 slides from Burberry's earnings presentation, November 2009
Slide 1: Burberry
SPs = A wey oe BURBERRY ESTABLISHED 1856
Slide 2: Interim Results for the Six Months Ended 30 September 2009
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2009
Slide 3: Agenda
AGENDA FINANCIAL REVIEW GROWING NON-APPAREL BUILDING GLOBAL BRAND MOMENTUM QUESTIONS 3
Slide 4: First Half Achievements
FIRST HALF ACHIEVEMENTS • SOLID BUSINESS PERFORMANCE IN CHALLENGING MARKETS – Revenue up 6%, down 5% underlying – Comparable store sales up 2% (Q2 up 5%) – Adjusted PBT of £83m – Better Q2 retail and gross margin performance • STRONG FINANCIAL POSITION – Inventory down 40% – Net cash of £56m – Inter
Slide 5: Group Revenue Up 6%, Down 5% Underlying
GROUP REVENUE UP 6%, DOWN 5% UNDERLYING • COMPARABLE STORE SALES UP 2% – Q1 flat; Q2 up 5% • WHOLESALE IN LINE WITH GUIDANCE • LICENSING BENEFITS FROM AMENDED £35m JAPANESE APPAREL AGREEMENT (£59m) £60m (£3m) £572m £539m H1 2008 EXCHANGE RETAIL WHOLESALE LICENSING H1 2009 RATES REVENUE 5
Slide 6: Retail Revenue Up 27%, Up 14% Underlying
RETAIL REVENUE UP 27%, UP 14% UNDERLYING • RETAIL 54% OF REVENUE • COMPARABLE STORE SALES UP 2% – Q2 improved to up 5% £6m £312m £20m – Regional trends persisted £9m £32m • DIGITAL COMMERCE LIVE IN OVER 25 £245m COUNTRIES – UP 50% IN H1 • CONTINUED TO IMPROVE QUALITY OF RETAIL PORTFOLIO – Major reno
Slide 7: Improving Retail Portfolio
IMPROVING RETAIL PORTFOLIO ION ORCHARD, SINGAPORE OCEAN CENTRE, HONG KONG 7
Slide 8: Wholesale Revenue Down 15%, 23% Underlying
WHOLESALE REVENUE DOWN 15%, 23% UNDERLYING IN LINE WITH GUIDANCE • H1 DECLINE OF 23% – 10% own actions – 13% wholesalers’ cautious buy • H2 EXPECTED DECLINE OF ABOUT 15% – Half own actions £21m (£26m) – Half mainly weakness in Spain £254m (£33m) – Excluding these, demand for global £216m collections
Slide 9: Licensing Revenue Up 13%, Down 6% Underlying
LICENSING REVENUE UP 13%, DOWN 6% UNDERLYING • LICENSING UP 13% REPORTED – Benefit from hedged yen rate of ¥170:£1 (2008: ¥223:£1) • NON-RENEWAL OF MENSWEAR LICENCES • JAPAN REMAINS DIFFICULT – Apparel licence amended £7.5m (£1.6m) (£0.9m) £44.7m • GROWTH FROM GLOBAL PRODUCT £39.7m LICENCES – Burber
Slide 10: Innovation in Eyewear and Timepieces
INNOVATION IN EYEWEAR AND TIMEPIECES 10
Slide 11: By Region
BY REGION REST OF WORLD +36% • SPAIN 9% OF REVENUE – Over half of decline is Thomas Burberry closure – Market remains challenging – Driving efficiencies EUROPE ASIA PACIFIC +2% +3% • DRIVING PRODUCTIVITY IN CORE MARKETS • DEVELOPING NEW MARKETS – Europe (Eastern and Southern Europe) – Americas (Cana
Slide 12: By Product Category
BY PRODUCT CATEGORY CHILDRENS +49% • NON-APPAREL STRONGEST PERFORMER • CHILDRENSWEAR GROWTH CONTINUES • OUTERWEAR HALF OF APPAREL – Impact of wholesale destocking WOMENSWEAR NON-APPAREL -10% • BURBERRY LONDON/BRIT +4% SEGMENTATION – Used in AW09 advertising campaign – New labels for SS10 – Real esta
Slide 13: Burberry London and Brit Segmentation
BURBERRY LONDON AND BRIT SEGMENTATION PRORSUM LONDON BRIT 13
Slide 14: Burberry
SPs = A wey oe BURBERRY ESTABLISHED 1856
Slide 15: Stacey Cartwright, EVP, Chief Financial Officer
STACEY CARTWRIGHT EVP, CHIEF FINANCIAL OFFICER
Slide 16: Financial Highlights
FINANCIAL HIGHLIGHTS 2009 2008 SIX MONTHS TO 30 SEPTEMBER CHANGE £M £M REVENUE 572.4 539.1 6% ADJUSTED PBT* 82.6 95.3 (13%) REPORTED PBT 78.4 97.0 (19%) ADJUSTED DILUTED EPS* 13.6p 15.3p (11%) DIVIDEND PER SHARE 3.50p 3.35p 4% NET CASH/(DEBT) 56.3 (114.3) - * SEE APPENDIX FOR DEFINITION OF ADJUSTED
Slide 17: Adjusted Operating Profit £86.3m
ADJUSTED OPERATING PROFIT £86.3M* £6.7m (£15.3m) £98.4m (£3.5m) £86.3m H1 2008 EXCHANGE RETAIL/ LICENSING H1 2009 RATES WHOLESALE ADJUSTED OPERATING PROFIT * SEE APPENDIX FOR DEFINITION OF ADJUSTED 17
Slide 18: Retail/Wholesale Profit
RETAIL/WHOLESALE PROFIT 2009 2008 SIX MONTHS TO 30 SEPTEMBER £M £M CHANGE REVENUE 527.7 499.4 GROSS MARGIN 298.0 283.4 AS % OF REVENUE 56.5% 56.8% (30bp) OPERATING EXPENSES (250.0) (219.0) AS % OF REVENUE (47.4%) (43.9%) (350bp) ADJUSTED OPERATING PROFIT 48.0 64.4 AS % OF REVENUE 9.1% 12.9% (380bp)
Slide 19: Retail/Wholesale – Gross Margin Down 30bp
RETAIL/WHOLESALE – GROSS MARGIN DOWN 30BP • BETTER THAN GUIDED AS STRONGER FULL PRICE SALES IN Q2 60.2% 56.8% 56.5% • MAJOR FACTORS – Cost efficiency programme – Wholesale to retail shift – FX impact – Offset by higher markdowns • H2 GROSS MARGIN TO INCREASE – Lower procurement for AW09 and SS10 – W
Slide 20: Retail/Wholesale – Operating Expenses/Revenue Up 350bp
RETAIL/WHOLESALE – OPERATING EXPENSES/REVENUE UP 350BP • OPERATING EXPENSES/REVENUE INCREASED AS FLAGGED IN MAY 2009 • MAJOR FACTORS BEHIND £31M INCREASE – Cost savings 47.4% – Offset by 45.0% 43.9% • FX impact • New retail space and joint ventures • Bonus/share scheme accruals • FULL YEAR OPEX/REVE
Slide 21: Licensing Profit
LICENSING PROFIT 2009 2008 SIX MONTHS TO 30 SEPTEMBER £M £M REVENUE* 44.7 39.7 GROSS MARGIN AT 100% 44.7 39.7 OPERATING EXPENSES* (6.4) (5.7) OPERATING PROFIT 38.3 34.0 OPERATING MARGIN 85.7% 85.6% * 2009 INCLUDES FX BENEFIT OF £7.5M IN REVENUE AND £0.3M IN OPEX 21
Slide 22: Amended Japanese Apparel Licence Improves Profits and Strategic Flexibility
AMENDED JAPANESE APPAREL LICENCE IMPROVES PROFITS AND STRATEGIC FLEXIBILITY ¥bn 153 • LICENCE NOW ENDS JUNE 2015 149 (PREVIOUSLY 2020) 144 140 • ROYALTIES HISTORICALLY PAID ON OUTPUT 125 118 113 • WORKED WITH LICENSEES TO CONTROL PRODUCTION, INVENTORY AND DISTRIBUTION • AMENDMENT INCREASES PROFITS F
Slide 23: Income Statement
INCOME STATEMENT 2009 2008 SIX MONTHS TO 30 SEPTEMBER £M £M ADJUSTED OPERATING PROFIT 86.3 98.4 OTHER ITEMS (4.2) 1.7 REPORTED OPERATING PROFIT 82.1 100.1 NET FINANCE CHARGE (3.7) (3.1) PROFIT BEFORE TAXATION 78.4 97.0 TAXATION (21.1) (22.2) MINORITIES (0.5) - ATTRIBUTABLE PROFIT 56.8 74.8 23
Slide 24: Strong Financial Position: Net Cash/(Debt)
STRONG FINANCIAL POSITION NET CASH / (DEBT) • NET CASH OF £56M AT SEPTEMBER 2009 • £170M IMPROVEMENT YEAR-ON-YEAR • DRIVEN PARTLY BY INVENTORY REDUCTION – Down 40% at constant exchange rates £56m £8m (£64m) (£114m) MARCH 2008 SEPT 2008 MARCH 2009 SEPT 2009 24
Slide 25: Cash Flow from Operations
CASH FLOW FROM OPERATIONS 2009 2008 SIX MONTHS TO 30 SEPTEMBER £M £M ADJUSTED OPERATING PROFIT 86.3 98.4 RESTRUCTURING COSTS (4.2) - DEPRECIATION AND AMORTISATION 24.1 19.5 EMPLOYEE SHARE SCHEME COSTS 7.7 1.3 DECREASE/(INCREASE) IN INVENTORIES 33.6 (43.8) INCREASE IN RECEIVABLES (25.2) (23.9) (DECRE
Slide 26: Free Cash Flow
FREE CASH FLOW 2009 2008 SIX MONTHS TO 30 SEPTEMBER £M £M CASH INFLOW FROM OPERATIONS 129.4 43.4 CAPITAL EXPENDITURE (32.5) (40.3) ACQUISITION-RELATED PAYMENTS 2.2 (1.7) NET INTEREST (3.7) (3.3) TAX PAID (7.4) (7.6) OTHER NON-CASH ITEMS (6.8) 2.5 FREE CASH FLOW 81.2 (7.0) 26
Slide 27: Total Cash Flow
TOTAL CASH FLOW 2009 2008 SIX MONTHS TO 30 SEPTEMBER £M £M FREE CASH FLOW 81.2 (7.0) DIVIDENDS (37.4) (37.2) OTHER SHARE CAPITAL 1.1 (5.3) EXCHANGE DIFFERENCE 3.8 (0.6) TOTAL CASH FLOW 48.7 (50.1) 27
Slide 28: Outlook
OUTLOOK RETAIL 8-10% average space increase in FY 2009/10 – Including about 15 mainline stores WHOLESALE Down around 15% at constant currency in H2 2009/10 – Half own actions – Half mainly continuing weakness in Spain – Excluding these, demand for global collections broadly flat LICENSING Down 5-10%
Slide 29: Paul Price, SVP, Non-Apparel
PAUL PRICE SVP, NON-APPAREL BURBERRY
Slide 30: Intensifying Non-Apparel Development: A Key Growth Initiative
INTENSIFYING NON-APPAREL DEVELOPMENT A KEY GROWTH INITIATIVE 34% 33% 32% Wholesale 366 Retail 29% 29% 290 28% BY CHANNEL 211 185 189 182 Rest of world Asia Europe FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 H1 2009/10 Americas £M REVENUE % OF RETAIL/WHOLESALE REVENUE NON-APPAREL REVENUE BY REGION (EX. S
Slide 31: Non-Apparel Product Mix Half from Large Leather Goods
NON-APPAREL PRODUCT MIX HALF FROM LARGE LEATHER GOODS SHOES SMALL LEATHER GOODS LARGE LEATHER GOODS SOFT AW09/SS10 ORDER BOOKS Soft includes scarves, mufflers, hats and umbrellas 31
Slide 32: Growing Large Leather Goods
GROWING LARGE LEATHER GOODS • OUTERWEAR AND LLGs SHARE MANY CHARACTERISTICS – Strong performance – Higher selling prices – Low fashion risk – Replenishment – Authenticity and heritage • STILL SMALL IN LLGs COMPARED TO PEERS • DRIVING GROWTH – Product innovation – Capsule collections – Gaining real e
Slide 33: Innovation in Large Leather Goods
INNOVATION IN LARGE LEATHER GOODS BEHIND THE SCENES AT LONDON RUNWAY LONDON RUNWAY – SLING BAG VINTAGE HOUSE CHECK WITH REEF KNOTS 33
Slide 34: Innovation in Large Leather Goods: Fashion Capsule Collections
INNOVATION IN LARGE LEATHER GOODS FASHION CAPSULE COLLECTIONS HAYMARKET RIVETS NOVA HEARTS 34 34
Slide 35: Fashion Capsules Enhance Core Collections: Haymarket
INNOVATION IN LARGE LEATHER GOODS FASHION CAPSULES ENHANCE CORE COLLECTIONS HAYMARKET 35
Slide 36: Fashion Capsules Enhance Core Collections: Nova
INNOVATION IN LARGE LEATHER GOODS FASHION CAPSULES ENHANCE CORE COLLECTIONS NOVA 36
Slide 37: Driving Small Leather Goods Penetration
DRIVING SMALL LEATHER GOODS PENETRATION • GOAL IS TO IMPROVE RATIO OF SLGs TO LLGs – Peers sell 2-3 SLGs per bag – Burberry sells less than one • DRIVING GROWTH – More comprehensive offer – Development of giftables range – Improved in-store presentation – Focus on belts on dedicated fixtures – Focus
Slide 38: Continued Opportunity in Shoes
CONTINUED OPPORTUNITY IN SHOES • BURBERRY STILL SMALL IN THIS MARKET • DRIVING GROWTH – Strengthening offer throughout pyramid – Brand momentum from runway shoes – Strengthening the team – Better in-store merchandising – Focus on womens currently • Childrens and mens to follow Prada Gucci Tod's Jimm
Slide 39: Runway Shoes Build Brand Momentum
RUNWAY SHOES BUILD BRAND MOMENTUM PRORSUM BOOT AT LONDON RUNWAY GWYNETH PALTROW MAGGIE CHEUNG 39
Slide 40: Innovation in Soft Accessories
INNOVATION IN SOFT ACCESSORIES • FROM CASHMERE MUFFLER TO SEASONLESS BUSINESS • COORDINATES WITH CORE ICONS AND FASHION CAPSULES • HIGH % ON REPLENISHMENT • BENEFITS BURBERRY FOUNDATION 40
Slide 41: Japanese Non-Apparel Joint Venture
JAPANESE NON-APPAREL JOINT VENTURE • STRENGTHENED MANAGEMENT TEAM – New headquarters in Ginza, Tokyo • RENOVATED OMOTESANDO FLAGSHIP STORE • UP TO TEN SHOP-IN-SHOPS OPEN FOR SPRING 2010 GINZA HEADQUARTERS 41
Slide 42: Applying Operational Excellence in Non-Apparel
APPLYING OPERATIONAL EXCELLENCE IN NON-APPAREL • SAP DATA ENABLING BETTER DECISIONS • PIONEERING GLOBAL BUY TO DELIVER EFFICIENCIES – Leverage buying of raw materials and finished goods – Focus marketing and in-store merchandising – Improve stock availability • REPLENISHMENT IMPROVING – Replenishmen
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Slide 44: Burberry
SPs = A wey oe BURBERRY ESTABLISHED 1856
Slide 45: Angela Ahrendts, Chief Executive Officer
ANGELA AHRENDTS CHIEF EXECUTIVE OFFICER
Slide 46: Continued Progress on Strategic Initiatives
CONTINUED PROGRESS ON STRATEGIC INITIATIVES LEVERAGING THE FRANCHISE INTENSIFYING NON-APPAREL DEVELOPMENT ACCELERATING RETAIL-LED GROWTH INVESTING IN UNDER-PENETRATED MARKETS PURSUING OPERATIONAL EXCELLENCE 46
Slide 47: Leveraging the Franchise: Building Brand Momentum
LEVERAGING THE FRANCHISE BUILDING BRAND MOMENTUM • MARKETING SPEND BROADLY FLAT AS % OF REVENUE • IMPACT EXTENDED BY – Licensee spend – Editorial coverage – Celebrity dressing – High profile PR events 47
Slide 48: Building Brand Momentum
BUILDING BRAND MOMENTUM THE PERFECT — WEEKEND WARDROBE UI eee teh 48
Slide 49: Building Brand Momentum
BUILDING BRAND MOMENTUM RYAN SEACREST DEV PATEL HUGH JACKMAN DANIEL CRAIG 49
Slide 50: Building Brand Momentum
BUILDING BRAND MOMENTUM 444 MADISON AVENUE EMMA WATSON AT LONDON FASHION SHOW 50
Slide 51: Embracing Digital Media
EMBRACING DIGITAL MEDIA • DIGITAL OF INCREASING IMPORTANCE IN ALL INDUSTRIES – Changing consumer behaviour – Higher and more measurable ROI • CONSISTENT MESSAGES ACROSS ALL MEDIA • DIGITAL CRITICAL FOR YOUNGER LUXURY CONSUMER • INVESTING IN DIGITAL SPACE – New team – Shifting advertising spend – Lon
Slide 52: First Half Summary
FIRST HALF SUMMARY • SOLID BUSINESS PERFORMANCE • STRONG FINANCIAL POSITION • INCREASED INTERIM DIVIDEND • DRIVING COST EFFICIENCIES • WHILE INVESTING IN BRAND • GREAT BRAND, GREAT COMPANY BURBERRY FOUNDATION 52
Slide 53: Well-Positioned for Long-Term Growth
WELL-POSITIONED FOR LONG-TERM GROWTH • BY PRODUCT – Womenswear: share gains – Non-apparel: to double – Childrenswear: to be 10% of sales – Menswear • BY CHANNEL – Retail expansion: 10% more space p.a – Selective wholesale growth: Americas to double – Digital commerce • BY REGION – Drive productivity
Slide 54: Burberry
SPs = A wey oe BURBERRY ESTABLISHED 1856
Slide 55: Appendix
APPENDIX BURBERRY 55
Slide 56: Adjusted Profit
ADJUSTED PROFIT “Adjusted” refers to profitability measures (pre and post tax) calculated excluding: 1. Restructuring costs of £4.2m (2008: nil) relating to the Group’s cost efficiency programme. 2. Credit of £1.7m in 2008 representing negative goodwill on the formation of the Burberry Middle East j
Slide 57: Illustrative Impact of Channel Shift from Interims, November 2006
ILLUSTRATIVE IMPACT OF CHANNEL SHIFT FROM INTERIMS, NOVEMBER 2006 £ RETAIL COST OF GROSS OPERATING OPERATING SALES GOODS MARGIN EXPENSES PROFIT WHOLESALE COST OF GROSS MARGIN OPERATING OPERATING SALES GOODS EXPENSES PROFIT RETAIL WHOLESALE 57
Slide 58: Wholesale Cycle
WHOLESALE CYCLE Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Season Market 08 08 08 09 09 09 09 09 09 09 09 09 09 09 09 10 10 10 10 10 10 Autumn 2009 Autumn/Winter2009 Autumn/Winter 2010 Winter 2009 Spring 2010 Spring/Summer2010 Spring/Summer 2010 Summer 2010 M
Slide 59: American Depositary Receipt Programme
AMERICAN DEPOSITARY RECEIPT PROGRAMME Burberry has an American Depositary Receipt (ADR) programme that trades on the Over-The- Counter ('OTC') market in the US. An ADR is a receipt that is issued by a depositary bank representing ownership of a company's underlying ordinary shares. ADRs are quoted i
Slide 60: IR Contacts
IR CONTACTS Fay Dodds Horseferry House Director of Investor Relations Horseferry Road fay.dodds@burberry.com London SW1P 2AW Richard L Jones Tel: +44 (0)20 3367 3524 Investor Relations Manager richard.jones@burberry.com Charlotte Cowley (on maternity leave until July 2010) Investor Relations Manager